Capital gains in Spain are now taxed at the flat 18% savings rate. There’s no fixed annual allowance for gains so if you make a profit on the sale or transfer (except on death) of an asset, the chances are that you will have a liability to capital gains tax. The profits associated the division of assets following divorce, the profit on the sale of the main home for an over 65 and the sale of a shareholding in owner director companies are normally exempt.
The tax payable on the profit from the sale of the main home can be deferred providing the sale proceeds are used to purchase a new home within two years of the sale. To qualify for rollover relief you must have owned your home for at least 3 years or be selling it because of a change in your circumstances, such as a new job in a different area or the death of your spouse.
Interestingly, whilst this rollover relief can’t be claimed by a non resident, as long as they make their new home their main home, a resident could claim the allowance even if their new home isn’t situated in Spain. In fact, if the Spanish tax authorities disallowed such a claim they would effectively be restricting the free movement of people and capital within the European Union, which isn’t allowed in EU law.
Over 65’s are exempt from tax on the sale proceeds of their main home providing they’ve lived in it as a resident of Spain for at least 3 years.
Spanish capital gains tax legislation underwent a drastic change in 2006. Prior to 2006 profits earned from the sale of an asset which was itself acquired prior to 1987 were completely free of tax, and assets acquired post 1987 but pre 1994 were subject to a sliding scale of tax reductions. In addition the system discriminated against non residents, who were taxed at a higher rate than residents.
From 2006 the tax rate for residents and non residents was harmonised at the flat 18% savings rate, and the gains from assets sold post 2006 are apportioned between pre 2006 gains and post 2006 gains. The pre-2006 element of the gain is assessed under the old rules, where the amount of the chargeable gain is calculated by reference to the year of purchase and may be reduced both by the application of a factor to take into account inflation over the term of ownership and by the sliding scale of reductions applied to assets acquired pre 1994. The post 2006 element is reduced by an inflation factor and is then chargeable at 18%.
This new regime is very confusing, so I’ll illustrate by way of an example. A Spanish resident purchases a home in 1993 for €50,000. He sells the home in 2008 for €200,000. Without taking into account the inflation reduction factor and any allowable expenses, the gain will be assessed as follows: -
The term of ownership is 2008 – 1993 = 15 Years.
Gain = Selling Price – Purchase Price = €150,000.
The gain is apportion between pre 2006 (13/15ths) and the post 2006 (2/15ths).
Pre 2006 = 13/15 x €150,000 = €130,000, so the post 2006 = €20,000.
The gain from a pre 1994 acquisition is reduced by 11.1% for each year purchased prior to 1994. So for an asset purchased in 1993 the pre 2006 gain will be reduced by 11.1%, which in this example equates to €130,000 x 11.1% = €14,430. The taxable pre 2006 gain will therefore be equal to the gain less this reduction i.e. €130,000 – €14,430 = €115,570.
The taxable gain is the sum of the pre 2006 gain and the post 2006 gain = €115,570 + €20,000 = €135,570.
Finally, the capital gains tax due = €135,570 x 18% = €24,402.60.
The pre 2006 gains earned from the sale of assets other than property assets are subject to a slightly different regime, whereby the pre-1994 element of the gain is reduced by 25% for each year of ownership as opposed to 11.1% for property assets.